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A WEEK and a half ago, United States president-elect Barack Obama
declined to meet the Group of 20: the leaders of the world's 20 most
advanced financial economies, including South Africa's.
Apparently wet-behind-the-ears President Kgalema Motlanthe made no
discernable impact at the Washington summit, just as finance minister
Trevor Manuel could not persuade this elite club to reform the World
Bank and International Monetary Fund when he and former president Thabo
Mbeki hosted the G20's annual gathering near Cape Town a year ago.
Nor is Obama likely to support the United Nations financing for
development meeting in Doha on Saturday, at which not 20 but 192 nations
will be represented, and at which Manuel is a special UN envoy, as he
was at the initial 2002 UN financial summit in Monterrey.
Two months ago, at a preparatory conference, Manuel observed that last
year aid flows fell 8.4% (to $104 billion) while military spending was
up 6% (to $1.3 trillion): 'These cold facts suggest that since Monterrey
we have done the opposite of what we said we would do, that we have
chosen war instead of peace. The food and fuel shocks and global
financial turmoil are a bellwether of the consequences of broken
promises. They are a sign of our failure.'
Absolutely true. Leading Africa economically, Motlanthe and Manuel
appear weak at a time when the world crisis is suffocating the
continent: crashing commodity prices, retracted investments, overall
global stagnation, the freezing up of trade finance and project credit,
and even sharper cuts in north-south aid flows. Whereas African civil
society, business and politicians alike wildly celebrated Obama's
November 4 victory, his announcement of new US economic managers on
Monday was like a painful hangover.
Consider three whom Jubilee Africa debt activists, for example, already
passionately distrust:
Treasury secretary-designate Tim Geithner, a central figure in the
present crisis because of his deregulatory yet pro-bail-out posture as
New York Federal Reserve Bank president.
National Economic Council director Lawrence Summers, the central
figure in the previous world financial crisis a decade ago, when as
treasury secretary he arm-twisted huge concessions from Asian countries
suffering rapid decline; and
Top Obama economic adviser Paul Volcker, who in the previous global
crash, from 1980-82, imposed the infamous Volcker Shock, causing the
Third World debt crisis.
My Centre for Civil Society colleague Dennis Brutus calls these men
economic criminals, and for very good reasons.
Geithner served in Henry Kissinger's consulting firm during the
mid-1980s, joined the Reagan-Bush administration in 1988, and then
worked for Summers and Robert Rubin in the Clinton treasury department
during the 1990s.
As New York Fed president, Geithner was implicated in both deregulation
and the first round of ineffectual Wall Street bail-outs in 2008, in
which he bailed out J P Morgan one day and failed to foresee the
devastating impact of the Lehman Brothers investment bank's demise on
world finance the next.
A speech by Leithner in March last year is instructive about the United
State's laissez-faire attitude to financial gambling: credit market
innovation should help to make markets both more efficient and more
resilient, and better able to absorb stress.
Hah, the opposite happened. But Geithner remained wilfully blind: We
cannot turn back the clock on innovation or reverse the increase in
complexity around risk management. We do not have the capacity to
monitor or control concentrations of leverage or risk outside the
banking system. We cannot identify the likely sources of future stress
to the system, and act pre-emptively to diffuse them.
Then why did both Bush and Obama give him such important jobs?
Summers, too, proved incompetent through consistent advocacy of
financial deregulation, although he is best known in US political
circles for the crude sexism controversy that cost him the presidency of
Harvard in 2006 (he wrote that women cannot do maths or sciences), after
extreme conflict with his university's leading African-American scholars.
Fifteen years earlier, Summers gained infamy as an advocate of African
genocide and environmental racism, thanks to a confidential memo he
signed as World Bank chief economist: I think the economic logic behind
dumping a load of toxic waste in the lowest-wage country is impeccable
and we should face up to that. I've always thought that underpopulated
countries in Africa are vastly underpolluted, their air quality is
vastly inefficiently low.
And Obama's most esteemed adviser, the 82-year-old Volcker, has done
more damage to Africa, its economies and its people than anyone in
recent history. As described by the Wall Street Journal: The
cigar-chomping central banker from 1979 to 1987, he received blame for
driving up interest rates and tipping the US into the deepest recession
since the Great Depression.
Even the International Monetary Fund's official history cannot avoid
using the famous phrase most associated with the Federal Reserve
chairman's name: The origins of the debt crisis of the 1980s may be
traced back to and through the lurching efforts of the world's
governments to cope with the economic instabilities of the 1970s
(including the) monetary contraction in the US (the Volcker Shock) that
brought a sharp rise in world interest rates and a sustained
appreciation of the dollar.
Debts
Owing to the Volcker Shock, remarks journalist Naomi Klein in her book
Shock Doctrine, Africa was squeezed nearly to death: On their own, the
debts would have been an enormous burden on the new democracies, but
that burden was about to get much heavier. Nigeria's debt in the short
time period (during Volcker's reign) went from $9 billion to $29 billion.
Volcker's reaction? As he told interviewers: Africa was not even on my
radar screen.
Why did the then-president Jimmy Carter choose this man in 1979 to chair
the Fed, which sets US (and by extension world) interest rates?
Carter's domestic policy adviser Stuart Eizenstat explained: Volcker
was selected because he was the candidate of Wall Street. This was their
price, in effect.
Although he retired in 1987, Volcker is back at Obama's side, and
according to the Wall Street Journal, conference calls and meetings of
the Obama economic team are often reorganised to accommodate his
schedule. When the team discusses the financial crisis, the most
important question to Obama is: what does Paul Volcker think?
Geithner, Summers, Volcker and similar economists whisper for a
resurgent US based on national self-interest, including a restored
financial system again capable of colonising world markets. (And to make
that possible, Obama's main Africa adviser, Witney Schneidman, is on
record as promoting military imperialism in the form of the Africa Command.)
Instead of this crew, there were plenty of other top economists with
proven Africa sympathies available, such as Nobel laureates Joseph
Stiglitz and Paul Krugman, or Jeffrey Sachs (who advocates African debt
repudiation), or, on the left, James Galbreath, Mark Weisbrot and Dean
Baker, but they did not get even a look-in.
Obama himself has said his fundamental objective for his father's
people is to accelerate Africa's integration into the global economy -
no matter the vast damage that strategy has done and is now doing. Which
Africans can stop Obama from tearing up his roots?
Patrick Bond is the director of the UKZN Centre for Civil Society.
Mr. Obama’s Economic Advisers
NY Times, November 25, 2008
In introducing his economic team on Monday, President-elect Barack Obama
said that he had chosen leaders who would offer sound judgment and fresh
thinking. Was that an order?
In various high-level government positions, Timothy Geithner, Mr.
Obama’s choice for Treasury secretary, and Lawrence Summers, his choice
for director of the National Economic Council, each have demonstrated a
capacity for good judgment and good ideas.
Both served in the Clinton Treasury Department — Mr. Summers as
secretary and deputy secretary and Mr. Geithner as a top aide — where
they won high marks for helping manage the fallout of that era’s crises,
including the Mexican peso devaluation, the Asian financial meltdown,
the Russian bond default and the collapse of the hedge fund Long Term
Capital Management.
Both men, however, have played central roles in policies that helped
provoke today’s financial crisis. Mr. Geithner, currently the president
of the Federal Reserve Bank in New York, also has helped shape the Bush
administration’s erratic and often inscrutable responses to the current
financial meltdown, up to and including this past weekend’s
multibillion-dollar bailout of Citigroup.
Given that history, the question that most needs answering is not
whether Mr. Geithner and Mr. Summers are men of talent — obviously they
are — but whether they have learned from their mistakes, and if so, what.
We are not asking for moral mea culpas. But unless they recognize their
past mistakes, there is little hope that they can provide the sound
judgment and leadership that the country needs to dig out of this
desperate mess.
As treasury secretary in 2000, Mr. Summers championed the law that
deregulated derivatives, the financial instruments — a k a toxic assets
— that have spread the financial losses from reckless lending around the
globe. He refused to heed the critics who warned of dangers to come.
That law, still on the books, reinforced the false belief that markets
would self-regulate. And it gave the Bush administration cover to ignore
the ever-spiraling risks posed by derivatives and inadequate supervision.
Mr. Summers now will advise a president who has promised to impose
rational and essential regulations on chaotic financial markets. What
has he learned?
At the New York Fed, Mr. Geithner has been one of the ringmasters of
this year’s serial bailouts. His involvement includes the
as-yet-unexplained flip-flop in September when a read-my-lips,
no-new-bailouts policy allowed Lehman Brothers to go under — only to be
followed less than two days later by the even costlier bailout of the
American International Group and last weekend by the bailout of Citigroup.
It is still unclear what Mr. Geithner and other policy makers knew or
did not know — or what they thought they knew but didn’t — in arriving
at those decisions, including who exactly is on the receiving end of the
billions of dollars of taxpayer money now flooding the system.
Confidence in the system will not be restored as long as top officials
fail or refuse to fully explain their actions.
Mr. Summers does not face Senate confirmation; Mr. Geithner does. The
senators should press him for the answers that have been lacking. That
is the only way to understand his philosophy and approach going forward.
Congress must play a more active role in crafting, analyzing and
continuously monitoring all bailout efforts — current and those to come.
Unlike President Bush, who ceded far too much power to his treasury
secretary, Mr. Obama must challenge and question his advisers’
recommendations and decisions. He has chosen tough advisers. He must be
even tougher than they are.
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